Walters: Why the Legislature’s budget proposal digs an even deeper hole

During his annual account on the state s finances last fall legislative budget analyst Gabe Petek warned that budget spending was increasing by about a year while revenues were growing by just Taken together we view it as unlikely that revenue enhancement will be fast enough to catch up to ongoing spending Petek explained adding in the coming years legislative action could be necessary to close this gap Petek s admonition is falling on deaf ears Gov Gavin Newsom s budget staff agrees with Petek that the state faces what s called a structural deficit in the neighborhood of - billion a year However the revised - budget that Newsom unveiled last month would spend about billion more than projected revenue He would cover the difference with a billion transfer from the state s emergency reserve plus deferrals loans from special funds bookkeeping gimmicks and a insufficient actual spending cuts to get it in the black The reductions would largely be in diagnostic care and social services for the poor drawing heavy criticism from their advocates and legislative allies Not surprisingly therefore the budget that legislative leaders countered with this week at least partially restores those services It also adds specific items that Newsom omitted including million in homelessness grants to local governments half of what they had been getting in latest years and a token million to implement Proposition an anti-crime measure that voters passed last year over Newsom s opposition Both items drew a sharp reaction from the California State Association of Counties saying that Californians won t accept half measures Other additions include particular wildfire help for Los Angeles County governments and a bailout for cash-strapped San Francisco Bay Area transit agencies The legislative leadership describes its budget as a fiscally responsible strategy that prepares California for economic uncertainty However it would increase general fund spending from the billion that Newsom proposed to billion thus expanding the overall gap between income and outgo which would be partially offset by an additional billion in loans from other state funds Related Articles Walters How much California regime and taxes have exploded under Democrats control Walters California s deficit dilemma cut spending borrow money or raise taxes Walters As California s business sector limps along why is Gavin Newsom inevitably boasting San Mateo County reveals billion budget as state and fed cuts loom Mathews Why California owes its undocumented workers Medi-Cal When legislative leaders were going over the budget behind closed doors they reportedly polled members about raising taxes on corporations to cover the additional spending but apparently there was not enough endorsement such a move especially since Newsom has refused to entertain tax increases In brief the legislative budget would put the state s finances in an even deeper hole making the day of reckoning when that happens even more politically arduous While the legislative budget will be passed this week to technically comply with the June constitutional deadline it will merely signal the beginning of negotiations between Newsom and legislative leaders on a more refined semi-final version And when that s done the process is likely to continue for months as more economic evidence surface and as the state learns whether President Donald Trump and a Republican Congress make the deep cuts in federal aid they have threatened Even if the budget survives whatever Trump and Congress have in mind the state s contemporary practice of overspending revenues will continue until and unless the governor and that possibly means Newsom s successor and legislators bite the bullet and either seriously whack spending or raise taxes The situation eerily resembles what Jerry Brown faced in when he began his second stint as governor The budget had been clobbered by the Great Recession and Brown cajoled legislators and voters into both reducing spending and raising taxes to close a large deficit Brown s issue was rooted in economic upheaval beyond the state s control In contemporary times s challenge is purely the conclusion of irresponsible increases in spending on a faulty assumption that the state would see a sustained revenue boom That s an fundamental difference Dan Walters is a CalMatters columnist